If you sell your property in a short sale, and your lender forgives a portion of the debt (–a big IF, as it requires quite a bit of grovelling, and a patient buyer–) to the extent your loan is forgiven by the bank, it is taxed as ordinary income. This is usually higher than the capital gains rate. Unfortunately, it has also been part of the tax code for decades, so the wingnuts can’t blame this one on OBAMA.

So, let’s say you purchased a $500,000 home near the top of the market in 2005 for $100,000 down, with a $400,000 mortgage, at the teaser rate of 1% for 3 years. When your loan rate increased to market rate in June 2008, your loan payment went from $1100 per month to $4800 per month, and you had paid back $10,000 of principle. Unfortunately, you still had $390,000 worth of debt, but your house currently has a fair market value of less than $350,000. In a short sale, you can only unload the place for $325,000. The seller’s lender and your bank approve the short sale. You have $75,000 worth of profit in the form of “forgiven debt.”

THERE ARE 4 EXCEPTIONS TO THIS RULE:
(1) When the borrower receives a bankruptcy discharge and the deficiency was included in the bankruptcy
(2) When the borrower is insolvent at the time of the cancellation of the debt. Insolvency would occur when a borrower’s liabilities exceed assets. Note that seller would have to prove this insolvency to the IRS when filing a tax return.
(3) When the debt was secured by a nonrecourse loan. Under a nonrecourse loan, the lender does not have the legal right to collect a deficiency judgment from any assets of the debtor not pledged to secure the loan. While most home mortgages are do not fall into this category, purchase money loans on a person’s residence are nonrecourse in some states.
(4) When the tax liability from the cancellation of debt on an investment property can be offset against other business liabilities and expenses. This exception does not apply to properties occupied as a residence by the mortgagor.

only if you make above $250K. and if you make more, the rate will still be 1/3 lower than what it was under Reagan. you fucking moron.

!!!!! hey, ignorant troll !!!!! Let’s check out some other !!!!!! buttons on your keyboard. Like the ones that have the funny looking things on ‘em that look like this: + – = They’re over on the other side of the keyboard — you know, the “RIGHT” side, nudge nudge!

No, not my right — YOUR right.

Yeah! Damn right you’re right, you betcha.

So, anyhoo — those + – = things……..ever learn what those mean? No? Didn’t think so.

‘S okay dude, don’t sweat it. Smokin’ Sarah will be right over to help you get your pants zipped, WINK WINK.

my, what a novel sentiment!